Question

Accounting

A company borrowed $68000 on September 1st, 2020. Principle and interest at 12% will be paid on August 31, No accrual was made for interest in 2020. What is the adjustment for interest.

Answer 1

Answer: $2,720

Explanation:

Assuming the payment will be done in 2021 on August 31, that means that the loan period is a year.

In this case, the interest should be apportioned per month. There are four months in 2020 that the loan was active for so these months should have an adjustment for interest:

Total interest = 12% * 68,000

= $8,160

Monthly rate is:

= 8,160 / 12 months

= $680

There are 4 months in 2020 so the interest for 2020 is:

= 680 * 4

= $2,720